Crossproduct Effect and Volatility Forecasting

Jiafu Xu, Xinyu Wu and Haibin Xie

Journal of Forecasting, 2025, vol. 44, issue 4, 1211-1234

Abstract: This paper explores if the crossproduct of return and realized volatility measure contributes to volatility forecasting. We find there is an asymmetric crossproduct effect in volatility and propose a realized asymmetric GARCH (henceforth RealAGARCH) model. The RealAGARCH model is a generalization to the absolute GARCH and the asymmetric GARCH. Moreover, the RealAGARCH model has a news impact surface instead of a news impact curve, which makes it different from other GARCH‐like models. Empirical performance of the RealAGARCH model is evaluated on a variety of stock indices, and the results show dominance of RealAGARCH over the benchmark RealGARCH judging by either in‐sample or out‐of‐sample forecasting performance. A battery of checks confirm the robustness of our findings and thus the importance of incorporating crossproduct effect into volatility forecasting.

Date: 2025
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https://doi.org/10.1002/for.3223

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Persistent link: https://EconPapers.repec.org/RePEc:wly:jforec:v:44:y:2025:i:4:p:1211-1234

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